iPhone 5c BOM Is 12% Cheaper than iPhone 5

IHS has conducted its teardown of the iPhone 5c, and the firm said that the bill of materials (BOM) for the device is some 12 percent less expensive than the iPhone 5 it replaced in Apple's product line. This is in keeping with thoughts on the device, but the IHS report offers some specifics on those differences.

According to the firm, the BOM on the 16GB model is US$166.45, $173.45 when you add $7.00 in manufacturing costs. The 32GB model has a BOM of $175.85, or $182.85 with the same $7.00 in manufacturing costs.

IHS Exploded View of the iPhone 5c

"Many expected Apple to take an affordable strategy with the iPhone 5c, producing a lower-cost smartphone that would be priced at around $400 in order to address developing markets, such as China," Wayne Lam, senior analyst for wireless communications at IHS, said in a statement.

He added, "The reality of the iPhone 5c is completely different, with Apple offering a phone with a $173 BOM and manufacturing cost, and a $549 price tag—without subsidies. Once again, Apple has stuck to its old tried-and-true formula of optimizing its iPhone hardware gross margins to attain maximum profitability."

Many had expected the iPhone 5c to come in somewhere in the neighborhood of $400 so that Apple could make significant inroads into emerging markets like China. IHS said that in order for Apple to maintain its customary margins, a $400 iPhone would have to have a BOM of "about $130," or 33.1 percent less than what we have for the iPhone 5c.

Doing so would have meant making significant compromises in the components that make up the device, and that's clearly a choice Apple was unwilling to make. It remains to be seen how this strategy will affect Apple's global position, but the combined iPhone 5c and 5s launch this past weekend resulted in a record 9 million unit opening three days of sales.

We should note that BOMs based on teardowns such as IHS's are not necessarily 100 percent accurate. Many of the pricing figures firms like IHS use are very educated guesses that are often based on supplier contacts.

Apple is very secretive, however, and the company drives incredibly hard bargains for its components, and that means that the actual BOM could differ materially from such reports.

As a relative measure of costs, however, reports such as this one is the best barometer we can get from the outside looking in.

Here's IHS's full table breaking down costs.

Table 1: Preliminary Teardown Bill of Materials and Manufacturing Cost Estimate for the Apple iPhone 5s (Cost in US Dollars)

What about yield loss, bulk packaging, shipping, warehousing, license fees, ad co-op fees, etc. etc. Remember that the BOM and labor costs are just the beginning, add to that the inevitable DOA units, returns replacements etc. Don’t let the big margins fool you; hardware is not a business for the feint of heart!